Piece rate pay, sometimes also affectionately known as “pay for effort” or “pay for performance”, is one of the most recognizable incentive schemes in manufacturing environments. Because it is simple to understand, production workers appreciate it, and employers embrace it because it guarantees a certain level of productivity from the workforce.
While simple in design and easy to implement, there are certain elements that employers must build into a piece rate pay system for production workers to make it effective.
Doing It Right!
As is evident from its name, Piece Rate Pay is based on paying workers for the number of pieces (or units) they produce. However, the system needs to have the following characteristics to make it fair for workers and productive for employers:
- The definition of what constitutes a unit or a “piece” must be very clearly outlined. Ambiguities in what is a paid deliverable, and what isn’t, can lead to unnecessary friction between workers and management
- Because some production processes are complex in nature, there must be a reasonable expectation of how many pieces constitute the “minimum” acceptable output from a worker, crew or workstation. Unless workers understand and accept how management arrived at that minimum, implementation of the system will always be challenged
- The rate per piece should be equitable, and fixed based on consultations with the workforce, or in line with generally accepted industry norms. Failure to fix a piece rate that seems “fair” will likely be construed as an unfair compensation practice by production workers, almost guaranteeing failure of any piece rate system
Using these basic principles, management and workers representatives can work together to develop the system and share responsibility for its implementation. During the early stages however, both partners to the system (workers and management) must be open to tweaking and fine-tuning the system.
Finer Points to Consider
While piece rate pay systems may look straightforward to design and implement, there are several other finer points that need to be considered to ensure success.
- The system must be designed on scientific principles – like a Time and Motion Study to determine run rates and units of output targets
- Employers must consider the inclusion of additional incentives (called Piece Rate+) in order to encourage workers to enhance their levels of productivity
- Workers must be adequately trained on quality considerations, because if they aren’t, their enthusiasm to complete as many pieces as possible could cause quality issues to spike
- What if there is an urgent production run that MUST be delivered by a certain date/time? Will workers be paid overtime to incentivize them to work longer hours and earn more than Piece Rate+?
- Ensure your record-keeping is always updated and simple to maintain
These are just some additional points to think about when designing and implementing Piece Rate pay systems. At the end of the day, if a purely-piece-rate structure doesn’t fit in your particular environment, you may wish to consider variants of the basic system, like Hourly + Piece Rate, or a graduating and incremental Piece Rate system.